US Stocks Recover Somewhat From Day-Earlier Losses

PeterA. McKay

U.S. stocks rebounded from their worst single-day losses since early March on Tuesday as investors picked up financial, technology and industrial stocks despite more grim earnings reports from a range of major companies.

At 11:40 a.m. EDT, the Dow Jones Industrial Average was higher by 54 points, propeled by strong gains for General Motors, which was up 9%, and financials like Citigroup and J.P. Morgan Chase, which had been pummeled on Monday. The S&P 500 index was higher by 0.9%, pushed up by a 3% gain in its financial sector. The tech-heavy Nasdaq Composite Index was up by 1.2% as Research In Motion and Oracle gained more than 3% and Yahoo gained more than 5%.

Strategist Al Goldman said that some bargain hunters who sat on the sidelines during the market's rally from early-March lows through last week seem to be rushing in on Tuesday. But he added: "I think they're making the wrong decision. You can't correct a six-week run like the one we had with a one-day decline," like Monday's.

The gains came even as a number of large companies issued grim earnings reports. Caterpillar said it swung to a first-quarter loss and cut its forecasts for the year as it expects the global economy to contract 1.3%. Its shares fell about 0.2%. Merck shares fell 6% after the drug maker cut its 2009 sales estimate.

But other heavyweights issued reports that appeared to ease some investor concerns. United Technologies shares were up more than 4% as the company vowed to rein in its costs and backed its previous guidance for the full year. DuPont, which also pledged to trim expenses while reporting a 59% drop in first-quarter net and cutting its outlook for 2009, saw its shares climb about 4%.

Goldman expects weakness in the stock market to last perhaps another week or two, dragging the Dow down another 200 points or so. That view is increasingly common on Wall Street, where earnings season is getting into full swing with little hope that companies will either show good results for the recently ended period or express optimism about the future.

Bank stocks broadly rose despite continued signs of strain in financial-sector earnings reports. Bank of New York Mellon shares slid 10% after it said that its first-quarter profit dropped an unexpectedly steep 57% and that it is cutting its dividend. Regions Financial and M&T Bank also declined after weak quarterly reports.

But U.S. Bancorp was up more than 11% after Chief Executive Richard Davis said he is ready to quickly repay the $6.6 billion of bailout money the bank received last fall. He said he believes U.S. Bancorp, which posted a 51% drop in first-quarter earnings on Tuesday, will pass the government's stress test.

Testimony from Treasury Secretary Timothy Geithner also appeared to help the financial sector. Geithner told a Congressional panel that the decision to allow U.S. banks to repay federal government funds will largely depend on the credit needs of the broader economy. "My basic obligation is to make sure the system as a whole has the ability to provide the credit that recovery requires," he said.

Citigroup Chief Executive Vikram Pandit struck a positive, even hopeful tone, at the embattled banking giant's annual meeting, insisting that it is well prepared for success in an economic recovery.

In his review of Citi's 2008, Pandit said, "The vital signs of Citi are improving." He predicted Citi will have "strong operating leverage" going forward once the economy recovers.

"It's certainly bank-led again," said Joseph Saluzzi, co-founder of brokerage Themis Trading. He said bank stocks are "jerking" the market around as economic fears wax and wane and as short-sellers adjust their positions.

"The bigger picture still tells you there's lots of potential problems: What was in these earnings? It was enough to get the stocks going for a whilenow the question is can they follow it up?"

"I want to see some more hard evidence of an economic rebound before we get giddy; I want to see unemployment numbers slow down and that hasn't happened yet. Saluzzi is waiting for extended strength in the commodities: "That shows global demand."

Overseas, Asia stocks dropped after the big tumbles in U.S. and Europe on Monday. The Nikkei 225 dropped 2.4% in Tokyo and the Hang Seng dropped 3% in Hong Kong. Stocks in Europe also fell.

Oil futures continued to slide after a drop of nearly 9% on Monday, with the front-month contract recently trading below $46 a barrel. The dollar advanced against the Japanese yen and fell against the euro.

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